Anyone born in the United States today has a life expectancy of 78.8 years, according to the Centers of Disease Control and Prevention.
New parents, I expect, look at that number and wish it was a little higher, but keep in mind, someday, it will be. For instance, if you’ve made it to the age of 65 years old, your average life expectancy is that you’ll be around another 19.3 years and would get you to 84 years of age. A year ago, if you were 65, your average life expectancy would have been another 19.2 years. In other words, these life expectancy numbers are always changing.
And that’s great news. As aging people reach higher numbers, it means everybody’s life insurance rates creep ever lower.
Oh, yeah, a longer life expectancy is also great news because we get to live longer, too. There is that. (Maybe my wife’s right, that I spend way too much time thinking about life insurance…)
Anyway, it’s an interesting phenomenon, how life expectancy rates and aging in general affects life insurance rates, one that I suspect isn’t all that well understood by consumers. So let me unpack some of the factors around life insurance rates and life expectancy, which, I promise, is more interesting than it sounds.
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Rates get lower because of competition. Yes, it’s tempting to think that an insurance company isn’t going to want to lower premiums. After all, what business wants to lower its prices and potential profits? Arguably, no business wants to, but many businesses slash prices to hold sales to draw customers in the doors, or they lower prices as the price of the commodity drops (think of a gas station selling gas, or a grocery store selling fruit or milk), all in the name of getting more profits. For the same reasons, most insurance companies won’t inflate its rates because other insurers sure won’t. Insurers ultimately want to offer the lowest prices that they can because they know that’s how they’ll attract more consumers.
And if you don’t believe me, ask Jack Taylor, a professor of retailing at Birmingham-Southern College who has an academic specialty in insurance. (He teaches insurance law, among other things, and is often quoted in the media for his insurance knowledge.)
“Life insurance companies will change their rates when new life expectancy numbers come out, in order to remain competitive, so they will try to reflect the most current data available,” he says. “New mortality rates don’t come out overly often that are accepted industry-wide, but when they do, companies absolutely review the tables.”
No insurance company wants to be offering unreasonable premiums while their competitor is offering fair pricing, Taylor adds.
Better medical care translates into lower insurance rates. That kind of goes without saying, of course. The reason people are living longer is because of improving medical care.
Still, it’s interesting to look back at history and get a sense of how things have improved, even if slowly. “In 1958, the Commissioners Standard Ordinary mortality table only extended to 100 years old, ” Taylor says. “In 2001, the table was lengthened to 120 to accommodate folks living longer lives.”
The oldest living person right now is 117, a woman in Japan named Misao Okawa. The oldest verifiable person to ever live was 122, in case you’re wondering — Jeanne Calment.
So who knows? Maybe in 50 years, the CSO mortality table, which can only be changed with the approval of the National Association of Insurance Commissioners, will change yet again to 140 because 120 will be the new 100 and quite a few people are making it to 133. That may sound improbable now, but back in 1958, it probably would have sounded unreal to hear predictions of the table one day changing to 120. In 1958, the average lifespan for a man was 66.6 years, and 72.9 for a woman.
And since you’re probably wondering, 100 years ago, a typical male baby born in 1915 could expect to live to be 52.5, and a baby girl was expected to live to be 56.8 years of age. Makes you even more glad to be alive now, doesn’t it?
What does this all mean for you? Your future grandkids and great-grandkids can wait to see how low those life insurance rates are going to be when its commonplace for people to be living to 140 or 150 years of age. You, of course, can’t wait.
Because with every passing year, rates go up, typically, about eight to 10 percent. That’s every single birthday that goes by, you’ll pay another eight to 10 percent more than you would have. That may not be such a big deal if you’re 25 and you put buying off insurance until you’re 26, but if you put it off until you’re 37, you can see how that adds up.
“It’s certainly better for a younger person to buy life insurance than wait until they get older,” Taylor says. “Because young people are assumed to live longer, they’re expected to pay premiums for a much longer period of time and rates are much more reasonable. Someone who is older inherently has to make up for lost time because they have to cover the same amount of premiums over a much shorter amount of time.”
Of course, that sounds like an argument that either approach — buying young or buying old — works out from a math standpoint. You either spread out the payments over, say, your 20’s and 30’s and beyond, or you buy when you’re in your 40’s, and, yes, pay more, but it all works out equally in the end.
And actually, you’d be right. It may work out all right. Nevertheless, by waiting years to buy your life insurance, you are risking that you’re going to pay for more, according to Taylor.
“Locking in your rate while you’re young generally means you’re also in better health at the time. The longer you wait, the greater likelihood that your health will decline in the meantime and you’re inviting those problems to surface that will make you pay more,” he says.
In other words, if you want really low premiums and want to buy life insurance like it’s 2099, buy it when you’re young. And healthy. Perhaps you have questions about which life insurance is best for your individual needs; we can help!
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